Hewlett-Packard, Dell to report next week

JanetHaney & Cecily Fraser

PALO ALTO, Calif. (CBS.MW) -- On Monday, Hewlett-Packard will release its first earnings report since shaking up the world of technology in mid-July by naming Carleton Fiorina as its president and chief executive officer.

H-P one-year monthly chart

"This is not just an earnings story now," Laura Conigliaro, an analyst at Goldman, Sachs & Co. said. "It's, certainly, mostly a story of earnings improvement, basically that first was driven by improving expenses (and) now increasingly is being driven by an improving top line.

"But I think, on top of that, of course, is the added element investors positive assessment of new management."

The future under Fiorina

Dubbed the most powerful woman in American business by Fortune magazine, Fiorina, a former senior executive at Lucent Technologies
lu
became the first woman president and chief executive of Hewlett-Packard and the first woman to run one of the 30 blue-chip companies in the Dow Jones average. See archived story.

"Carly is very customer-oriented and very marketing-oriented," Conigliaro said. "And, certainly, one of the things that Hewlett-Packard has really always been seeking to do is ... to improve its marketing and sales profile. And she really is someone who brings that dimension, or could bring that dimension, to Hewlett in the kind of way that starts to gradually change their culture."

Also in its eventful third quarter, H-P revealed the new name of its former measurement and components businesses: Agilent is the result of H-P's plan to realign itself into two independent companies. See press release.

Merrill Lynch analyst Steve Milunovich said in a research note that H-P will incur expenses in its third quarter in conjunction with the spinoff of Agilent, yet most of the expenses "should come" in the fiscal fourth quarter.

The quarter

Analysts surveyed by First Call expect Palo Alto, Calif.-based H-P to post a profit of 80 cents a share for its third quarter. Morgan Stanley Dean Witter's Tom Kraemer said in a note that he expects "solid quarterly results" for H-P, whose stock he rates "outperform."

Conigliaro has an 81-cent-a-share estimate on H-P's quarter and said she is "pretty comfortable" with that number.

The computer hardware maker reported third-quarter net income of $621 million, or 58 cents a share, in the year-ago third quarter, beating Wall Street's consensus estimate of 54 cents a share. Revenue for the quarter hit $11 billion, compared with $10.5 billion in the year-ago quarter. See archived story.

Last quarter, the Silicon Valley company said net income rose to $918 million, or 88 cents, from $685 million, while revenue for that period was $12.4 billion. See archived story.

Looking ahead

Also during the quarter, H-P and Hitachi announced joint technology and original equipment manufacturer agreements intended for the enterprise storage and storage area network markets. See archived story.

"In the storage space, the world has changed dramatically since the announcement with Hitachi, and the question is, How are they going to respond?" said Jonathan Ross, an analyst at ABN Amro. "That's going to be a key thing going forward."

Conigliaro added that investors should also keep an eye on H-P's order growth as well as any "additional color" on so-called Y2K issues.

Will Dell dazzle?

High-tech bellwether Dell Computer will take to the earnings stage Tuesday after the market closes. Wall Street will be looking for the world's No. 1 direct computer vendor to post a second-quarter profit of 17 cents a share.

In the year-ago period, the Round Rock, Texas-based company
dell
said earnings increased 72 percent to 50 cents. Net income was $346 million. Revenues increased 54 percent to more than $4.3 billion.

In a note to clients, BancBoston Robertson Stephens analyst Dan Niles said he expects Dell to earn 17 cents a share, but he said the potential of a penny of upside is "reasonable."

"We believe the strength seen in July, albeit with heavy pricing pressure, may have been enough to allow for a slight upside," he said.

Last quarter, the company said revenue was $5.5 billion, up 41 percent from the year-earlier quarter. At that time, the company's guidance for sequential revenue growth was 5 percent in the second quarter, or 35 percent on a year-over-year basis. Niles is expecting revenue for the second quarter to hit $5.86 billion.

Analysts will also be keeping an eye on gross margin, or the amount of money earned per dollar of revenue. Dell surprised Wall Street analysts last quarter with news that gross margins fell to 21.5 percent from 22.4 percent in the previous quarter due to the squeeze of an aggressive PC pricing environment. See archived story.

"If margins are stable, then the stock will probably get a good boost on the back of that," Jonathan Ross, an analyst at ABN Amro. "If they continue the declines from the prior quarter, then, even if they make the numbers, the Street could be slightly, shall we say, exacting."

A year ago, Dell posted a gross-margin increase to 22.7 percent from 22.2 percent a year earlier.

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